If there was a competition to find the ugliest city on Earth, Ulaanbaatar
would be the leading contender for the title, says a report in The Telegraph in
London. The
combination of grim, Soviet-style concrete high-rises, rambling slum-shanties
and towering coal-fired power plants belching out smoke over the city reeks of
the depression and decay that was a legacy of decades of communist rule.

But
look more closely and it is clear that change is afoot in this mineral-rich
former Soviet acolyte which is on the cusp of a mining boom that has led
investors to describe Mongolia
as the “Kuwait of Central Asia”. The augurs of new wealth are already
visible on Ulaanbaatar’s
dowdy streets – luxury brands such as Louis Vuitton and Armani have opened
branches in the past year, catering to customers in Range Rovers and Porsche
Cayennes. And in the city”s Grand Khaan Irish Pub the vanguard of the coming
investment boom can be found quaffing pints and discussing deals – suited
diplomats and investment bankers rubbing shoulders with rough-necked mining
engineers and their suspiciously pretty local “girlfriends”.

For
decades the global resources industry has had its eye on Mongolia“s huge
mineral deposits – it has world-class reserves of gold, copper, coal,
fluorspar, silver, uranium and tungsten – but has been deterred by a
combination of corruption and political instability. That all changed last year,
however, with the formation of a pro-business government that is now, albeit
cautiously, welcoming foreign investors to partake in a boom that it hopes will
triple the nation”s GDP in the next decade.

Headline-grabbing,
public investments are only the tip of the iceberg, according to Matthew Totty,
managing director of Redwood Capital, which specializes in bringing Chinese
firms to the international markets. Totty is among those who see Mongolia as the next big opportunity or, as he
puts it, “the last major untapped frontier” for mineral exploration,
with the lure of a resource-hungry China on its doorstep.

Totty
said investing attitudes towards Mongolia had been transformed over
the last year. “Since they sorted out the windfall tax and settled with Ivanhoe,
the floodgates have opened. I”ve seen a 180-degree turnaround in Hong Kong;
private equity firms that wouldn”t touch Mongolia a year ago are now
actively focusing on the country.”

Such
confidence in the “new” Mongolia is not universally shared,
however, particularly after the Government announced this year that it was
canceling its auction for a 49pc stake in the world”s largest undeveloped coal
field, the USD2-billion Tavan Tolgoi (TT) deposit. Having invited bids from
heavyweights including BHP Billiton, Vale SA, and US miner Peabody, Prime Minister
S.Batbold announced last month the Government had decided it preferred complete
state control, adding that other projects would be decided “on a
case-by-case basis”.

Such
uncertainty was seen by some as a disturbing throwback to the last decade, as
was the passage of a 2009 Nuclear Energy Law which appropriated 51percent of
all state-discovered uranium deposits to the Government for no fee, effectively
halting all uranium projects in Mongolia.

Worries
also persist over the impact of strategic squabbles between Russia, which still exerts political influence
over Mongolia, and China, the
natural customer for its mineral resources. Tensions between the two are being
blamed for the failure to agree a deal to build a planned railway linking the
Oyu Tolgoi and Tavan Tolgoi mines to China, a move described as a
“no-brainer” commercially, but unacceptable politically to Russia and
sections of the Mongolian public who fear China”s growing influence.

And
yet, notwithstanding these political risks, the potential rewards continue to
lure investors like Totty. “This is the last virgin frontier for minerals
exploitation, but you have to accept that there are strategic aspects the
government will seek to control. Much of the elite is savvy, Ivy
League-educated and understands international business culture. In the end, Mongolia
desperately needs the foreign investment and the know-how. If they screw over a
big public company they”re done for, and they know it.”